Cramer: Oil's Fall Is Econ 101

This post appeared earlier today on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

Nigerian rebels, Iranian saber-rattling, potential Israel-Iran war, hurricane warnings, Venezuelan meddling, Turkish pipelines, BP (BP Quote) woes in Russia, all of these at one time have allegedly contributed to the strong oil price. Every time we rallied a couple of bucks, the usual suspects were rounded up and given credit for the rally.

And then the biggest actual ruckus of all -- a war between major oil producer Russia and Georgia -- rages on, and oil cascades lower into the escalation. LOWER! If this incursion were to rank with the parade of horribles that allegedly spurred oil from $90 to $148, it would be off the charts. It is the real deal that can interrupt pipelines and cause a calamity in the European market. It should have sent natural gas -- the Europeans live off Russian natural gas -- into the stratosphere, as it should have caused hoarding and a spike even here for recognition that no liquefied natural gas could come here because it would be needed so badly in Europe.

So why didn't it? From the beginning, I have said this is all economics: Supply wasn't able to meet demand. Supply wasn't constant -- it keeps dropping everywhere except Saudi Arabia -- but more important, demand did not slow down until the peak hit; at that point, which produced gasoline well above $4, we stopped using. We slowed driving incredibly. We carpooled, stopped taking excessive trips, turned in the SUVs and wiped out the most popular category of automobiles -- trucks -- overnight. Since Memorial Day, the wholesale shift has made it so the Valeros (VLO Quote) and the Tesoros (TSO Quote) have nowhere to put gasoline and little demand. ...